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U.S. Considering Potential Termination of FTA with South Korea as NAFTA Renegotiation Advances

15 September 2017

President Trump recently suggested that the United States may withdraw from its free trade agreement with South Korea but that threat appears to be on hold after administration officials, business groups and others raised concerns. According to press reports, following bi-lateral discussions in late August that yielded little progress toward President Trump’s goal of renegotiating the U.S.-South Korea FTA (KORUS), Trump considered notifying South Korea that the United States would withdraw. However, a range of interested parties reacted quickly with an intensive effort to prevent a withdrawal.

In a joint statement, the senior Republican and Democrat leaders of the Senate Finance and House Ways and Means committees acknowledged that South Korea needs to improve its implementation and compliance with the agreement but said the United States “must not withdraw” as it works to achieve that goal. KORUS is “a central element” of the U.S.-South Korea alliance, the lawmakers said, and South Korea is the seventh-largest export market for the United States, making it “a vital customer” for U.S. manufacturers, service providers, farmers and ranchers.

U.S. Chamber of Commerce President Thomas Donahue was even more forceful, calling withdrawal a “rash and irresponsible move” that the Chamber opposes “in the strongest possible terms.” Donahue asserted that withdrawing from KORUS would reduce U.S. exports and the associated domestic jobs, jeopardise national security by alienating South Korea at a time of rising tensions with North Korea, and complicate other initiatives such as tax reform by damaging relations between the Trump administration, Congress, and the business and agriculture communities.

While there were reports that a notification of withdrawal could have been submitted as early as 5 September, no such action had been taken as of 8 September and multiple press reports indicate that the White House has delayed further consideration. However, a Reuters article quoted an unnamed administration officials as cautioning that the idea of withdrawal is “not dead” and “could come back.”

Meanwhile, and despite renewed threats from President Trump in recent weeks to withdraw the United States from the North American Free Trade Agreement, the second round of talks on the renegotiation and modernisation of that agreement yielded “important progress,” according to a 5 September joint statement.

The statement said more than two dozen working groups “worked diligently to advance the discussions” during five days of talks in Mexico City. U.S. Trade Representative Robert Lighthizer said text for more than two dozen chapters has now been tabled, and according to the statement several working groups were able to consolidate proposals into a single text that will be the focus of their work in subsequent rounds. The third round is scheduled for 23-27 September in Canada.

While the statement reaffirmed a goal of concluding talks by the end of 2017, prospects for meeting that objective remain uncertain. Lighthizer said the three sides “have found mutual agreement on many important issues” and that “work continues at a record pace.” According to an Associated Press article, however, Mexican Secretary of the Economy Ildefonso Guajardo told the country’s Senate recently that difficulties on labour issues, e-commerce and other issues were already evident during the first round in August.

Trump has accused Mexico and Canada of being “very difficult” in the negotiations so far and warned that the United States may have to initiate the process of terminating NAFTA to secure satisfactory changes. Press sources report that Mexican and Canadian officials increasingly see this threat as a negotiating tactic, due among other things to questions about whether Trump has the legal authority and political support to end the agreement. However, Mexican officials have said Mexico will not continue negotiating if Trump follows through on that threat and is taking steps to boost trade with other countries in the event that NAFTA is terminated.